The difference between compound and simple interest on Rs. 15,000 for 2 years is Rs. 96. What is the annual interest rate?
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Answer: A. 8
Explanation
The difference between compound and simple interest over two years follows a specific algebraic formula. Substituting the given difference and principal into the formula isolates the squared interest rate. Solving for the annual rate yields an exact integer value of eight percent. For a two year period, the difference between compound and simple interest equals principal times rate squared. Interest rates in financial formulas are typically expressed as decimals or fractions per hundred. Extracting square roots allows solving for unknown rates in quadratic financial equations.
Financial analysts use interest difference formulas to verify loan terms and compounding frequencies. Understanding compounding effects helps borrowers compare different loan agreements and interest structures. Investment planning requires precise calculations of growth differentials over multi year periods. Option b suggests a ten percent rate which produces a different interest difference amount. Option c proposes a twelve percent rate that contradicts the given principal and interest variance. Option d is incorrect because the rate can be determined definitively using algebraic formulas.
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- Mathematics
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- Mathematics
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